The Impacts of a Gas Tax in the Midwest

A gas tax has been one of the most unpopular means of taxing the individual since Congress passed the Revenue Act of 1932 allowing for the collection of a tax per gallon of fuel purchased. The concept of a gas tax has made news headlines in the last year. A rise in the gas tax in France has led to French protesters rioting in the streets, causing gas to reach over $7 a gallon with a majority of that being tax. Even in the recent gubernatorial election in Wisconsin, the gas tax was a large talking point for Governor Scott Walker, as the Walker campaign sited Tony Ever’s being open to raising the gas tax by “a dollar.” The worst of it all is that Republicans in the Wisconsin capitol seem to be open to raising the gas tax with certain requirements. In either scenario, the idea of a gas tax has been seen as negative on the population, as it should be. A deeper look into the liberal’s reasoning for a gas tax should be considered when debating its implementation.

The first reason for implementing a gas tax would be to limit the environmental impact of motor vehicle use. This example is mainly the reasoning behind France’s gas tax hike in recent months; a tax that led to protests against the increased gas prices. Many other countries, including Norway, Sweden, and Finland, use this microeconomics theory to limit what is called a negative externality on society. The thought is that if the government raises taxes on a product, (gas, cigarettes, fast food, ex.) the product will be consumed at a lesser rate. This leads to the negative side effect of gasoline consumption to either diminish or no longer exist. However, when implemented with a product like gasoline, the effects are quite different, as gasoline is such a dire need for people to travel to work, school, and other events. This product is known to economists as inelastic; when the price increases, the demand doesn’t see an equivalent change. Unlike taxes placed on alcohol and cigarettes, often labeled as sin taxes, the demand doesn’t decrease at a similar level. The situation in France is a perfect example of how a tax on gasoline to eliminate environmental issues is an awful idea. Any normal American gas tax increase is usually around one cent a gallon, but France’s planned increase was going to be around twenty-five cents per gallon. For the average consumer of gasoline traveling from Portage, Wisconsin to Madison Wisconsin for work (about a 40 mile drive) in a car that gets about 30 miles to the gallon, the expected annual increase of costs from the French tax increase would be around $175 extra per year for one individual just to get to work. This does not include going to do errands or other traveling needs.

The second reason for implementing a gas tax would be to gain revenue to increase the condition of roads and other means of transportation. This was likely the reasoning behind Wisconsin Governor Tony Evers when he claimed he would be open to raising the gas tax in Wisconsin. Unfortunately for Wisconsin residents, road conditions within the state have been ranked as some of the worst in the country. Some of this is likely due to the constant construction in high traffic areas, but many forget the real blame should be put on liberals in Wisconsin government during the Jim Doyle era when funds from the transportation budget were ransacked for improving Wisconsin schools. Unfortunately, Milwaukee Public Schools have not seen much improvement from the improper spending almost 15 years ago. Either way, Wisconsin roads are in terrible shape, but raising the gas tax is more impactful than some might think.

Raising the gas tax to increase the transportation budget is a risky business for any politician, mainly because people are already heavily taxed for transportation budget needs. The current Wisconsin citizen is paying approximately 50 cents a gallon for tax purposes. For gas at $2 a gallon, the price is made up from 25% taxes. This, quite frankly, would be ridiculous for any product to be taxed at similar amounts. To give reference, some claim the amount of tax on tea during the Boston Tea Party was around 25%, agreed upon by many as a high percentage. Other than the gas tax, the transportation budget is also made up of other fees. For instance, when you purchase a vehicle in Wisconsin, there is a registration fee of $75 that gets placed into the transportation budget. There have also been talks about bringing toll charges to highways, but this will only increase traffic on other side roads leaving more country roads worse off. Some areas, particularly Milwaukee County, went as far to implement a wheel tax, a $30 annual charge on each wheel a vehicle has. For the average consumer with two cars, this would be an annual fee of $240, not including license fees. If a vehicle is registered in Milwaukee County and you commute 30 minutes to work, it is likely you are paying over $300 a year in taxes just to get to work. Some of these miles can be deducted from annual taxes, but very few people actually report these claims on their taxes as deductibles due to certain restrictions limiting what can be deducted. Wisconsin also has a tax on hybrid and electric vehicles on top of the $75 registration fee. This fee adds $100 to registration to make up for lost revenue on gas purchases. The best way to describe how the Wisconsin transportation budget is that the DMV and government “nickel and dime” the individual, so it does not seem as if the individual is actually paying over $1000 in transportation taxes every year.

The most difficult issue to deal with is that the gas tax mainly affects the working middle class. The gas tax doesn’t affect the poor as much as others, as lower class individuals either can’t afford a car to purchase gasoline in the first place or live in the larger cities where other means of travel can be used to get to work for less. The gas tax also doesn’t affect the rich since the upper class is wealthy enough that the extra costs won’t have any effect on them. When someone puts 20 gallons of gas into their vehicle in Wisconsin, they are paying approximately $10 in taxes. This goes completely unnoticed by the consumer because the tax paid is not shown on a receipt or at the pump. In Wisconsin, the average commute by car to work is about 22 minutes one way. For the average person living in Wisconsin, the only way to get to their job is by a vehicle, meaning the gas tax would have a profound negative impact on individuals.

Whether it be the gas tax, a registration fee, a licensing fee, or even the absurd wheel tax, the individual is getting ripped off in every scenario. As a famous comedian, Chris Rock said, “You don’t pay taxes, the government takes them from you.” The path to hidden taxes on the middle class is rising, and nothing is more of a hidden tax on the individual as the gas tax. Wisconsin and the rest of the world are looking at a negative path forward if taxes on working-class individuals continue to rise.